Confectionary Industry: An Overall Review

1. Introduction
Confectionery is the set of food items that are rich in sugar, any one or type of which is called a confection. Modern usage may include substances rich in artificial sweeteners as well. The word candy (North America), sweets (UK and Ireland) and lollies (Australia and New Zealand) are also used for the extensive variety of confectionery.

Generally speaking, confections are somewhat low in micronutrients but rich in calories. Specially formulated chocolate has been manufactured in the past for military use as a high density food energy source.

Confectionery is the general term applied to various varieties of sweets and chocolates. Organised market for sugar confectionery is estimated to be 1,39,000 tonnes per annum and is growing at the rate of 10 - 15% per annum. The confectionery market has undergone a metamorphosis in the last few years. From the commodity market controlled by local players, it has changed to a branded products market with strong presence of multinational companies. The confectionery market is highly fragmented with several players with strong regional presence.

Display of Confectionary items

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1.1 Industry Snapshot

Americansand for that matter just about everybody elsehave an insatiable appetite for candy. The U.S. population as a whole consumes more than 7 billion pounds of the stuff each year. Only about half of that is chocolate, with gummy bears and all sorts of other nonchocolate confections accounting for roughly 3.5 billion pounds. The U.S. candy industry was valued at $24 billion in the early 2000s by Euro monitor International. Market growth was exceptional through the late 1990s. In keeping with the growth of health conscious consumers, low-fat/low-calorie candies gained prominence in the industry. However, the level of new product introductions in the industry was low during the mid1990s. With sales of more than $22 billion, candy and other confections made the third biggest consumer-food category in late 1999, trailing only soft drinks and milk. As the new millennium started, the U.S. candy and confectionery industry continued slow but steady growth, although a weakened U.S. economy was expected to depress results somewhat. Analysts foresaw a number of challenges to be faced by the industry's equipment and ingredient suppliers. These challenges include the shift in technical knowledge from the manufacturer to the supplier, increased new product development, new distribution channels, continued plant and company consolidation, and the introduction of so-called nutraceuticals into confectionery products.

1.2 Background and Development

Many of the most popular candy bars sold today were developed between the 1890s and 1920 by various candy makers around the country. Rights to many of these candies have been bought and sold many times since they were developed and now are owned by large corporations such as Mars, Hershey Foods, Warner-Lambert, and RJR Nabisco. Milton S. Hershey manufactured the first chocolate bar in the United States in 1894. Hershey Kisses were introduced in 1907. The Bunte Brothers are credited with manufacturing the first chocolate-covered candy bars in 1911. During World War I, Hershey and other candy makers shipped large blocks of chocolate to army training camps, where the blocks were cut into smaller chunks for distribution. This task became too time-consuming for military personnel,
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and the manufacturers started wrapping individual chocolate bars before shipping them. After the war, the candy makers continued to sell candy commercially in this form, and this method of selling candy became popular and convenient. Many lines of candy bars were first sold for a dime, but sales did not catch on since consumers could buy a pound of loose candy for that same dime. Immediately after World War I, however, sugar and chocolate prices dropped and the price of most candy bars was dropped to a nickel. The price remained fairly constant until the late 1960s, when the price went back to a dime because of rising costs. Since then, prices have steadily climbed. The first part of the twentieth century marked an explosive period of growth for the industry. Dozens of new candy products were introduced during this period, and many have endured. Ferrara Pan, a candy company formed in 1919 in Illinois, produced Jaw Breakers, Atomic Fireballs, and Boston Baked Beans. In 1919 the Oh Henry! bar was first manufactured by the Williamson Candy Company of Chicago. Charleston Chews were first sold in 1922 by the Fox-Cross Candy Company near San Francisco. Goobers were first made by the Blumenthal Chocolate Company in 1925. Holloway Milk Duds were introduced in 1926 by the Holloway Company. During the 1920s and 1930s, the James O. Welch Company introduced several favorites that are still around today, including Sugar Daddy, Sugar Babies, Pom Poms, and Junior Mints. Heath Bars, manufactured by the L.S. Heath Company, went on the market in 1932. Chunky was developed in the mid-1930s by Philip Silverstein, a New York candy maker. In 1930 the most popular candy bar in America was createdSnickers. Snickers is one of the few candy bars still produced by its OriginatorMars, Inc., which today is one of the largest private companies in the United States. Mars introduced the Milky Way bar in 1923, 3 Musketeers and the Mars Bar in the 1930s, and M&M's in 1941. The candy industry has gone through a period of consolidation during the past 20 to 30 years. In the 1960s Hershey acquired Reese's, maker of Reese's Peanut Butter Cups since 1923; in 1977 Hershey acquired Y&S Candies, which had marketed licorice Twizzlers and Nibs since the 1920s. Hershey's acquisition of Cadbury Schweppes' U.S. division in 1988 propelled Hershey past Mars to become the leading U.S. candy maker. The purchase gave Hershey the rights to Peter Paul Almond Joy and Mounds, as well as Cadbury and Caramello products, to buttress its already impressive product line.
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The industry has grown steadily in the 1990s. By 1992, shipments were valued at $8.9 billion. Adjusted for inflation, the value of candy and confectionery shipments rose an estimated 3.2 percent in that year. Between 1987 and 1991, the inflation-adjusted value of industry shipments rose 2.2 percent annually. In the mid-1990s candy makers began to cash in on the holiday markets. The seasonal candy market posted overall respective dollar and unit volume gains of 10.4 percent and 9.7 percent in 1995, according to the Candy Industry overview of this industry. Mars, Hershey, and Nestle had traditionally stayed away from the holiday candy market, but when candy consumption and sales remained flat, the candy giants saw great opportunity to capture a major share of the holiday sales. The three companies repackaged many of their most famous goodies in pastel colors for Easter. Their entry into the holiday market shoved aside many of the usual holiday candy manufacturers.

1.3 Categories
The entire sugar confectionery market can be divided into seven major categories, viz. hardboiled candies (HBCs), toffees, clairs, chewing gum, bubble gum, mints and lozenges. As shown in Figure below, HBCs form 52% of the entire market, 18% is formed by toffees and 18% by chewing gum and bubble gum collectively. clairs form just 5% of the entire market. Mints and lozenges form 4% and 3% of the market respectively.

Figure: Sugar Confectionery Market

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Some of the categories and types of confectionery include the following: Hard sweets: Based on sugars cooked to the hard-crack stage: a 2:3 mixture of glucose syrup and sucrose in water is concentrated to a plastic state, amenable to coloring and flavoring. Upon further cooling and standing the material hardens. Examples include suckers (known as boiled sweets in British English), lollipops, lemon drops, peppermint drops and disks, candy canes etc.

Taffy: These are related to hard candy that is folded many times above 50 C. This process incorporates air bubbles, reducing the density of the material and making it opaque. Often sorbitol, a sugar alcohol, is added to maintain moisture. Toffee, in British English, can also refer to a harder substance also made from cooked sugars which resembles toffee.

Fudge: A confection of milk and sugar boiled to the soft-ball stage. In the US, it tends to be chocolate-flavored.

Caramels: These are derived from mixtures of sucrose, glucose syrup, and milk products. The mixture does not crystallize, thus remains tacky.

Tablet: A crumbly milk-based soft and hard candy, based on sugars cooked to the soft-ball stage. Comes in several forms, such as wafers and heart shapes.

Liquorice: Containing extract of the liquorice root. Chewier and more resilient than gum/gelatin candies, but still designed for swallowing.

 Chocolates: They are bite-sized confectioneries generally made with chocolate. People who create chocolates are called chocolatiers, and they create their confections with couverture chocolate. A chocolate maker, on the other hand, is the person who physically creates the couverture from cacao beans and other ingredients.

Mithai:

A generic term for confectionery in India, typically made from dairy

products and/or some form of flour. Sugar or molasses are used as sweeteners.

Pastry: A baked confection whose dough is rich in butter, which was dispersed through the pastry prior to baking, resulting in a light, flaky texture; this dough might be used in pies and tarts.

Chewing gum: Uniquely made to be chewed, not swallowed. However, some people believe that at least some types of chewing gum, such as certain bubble gums, are indeed candy.

Ice cream: Frozen flavoured cream, often containing small chocolates and fruits.

2. Overview of the World market

2.1 World Market
Confectionery products include sugar-type candy, gum, chocolate candy and cocoa ingredients. According to the International Cocoa Organization (ICCO), the main world forum for the gathering and dissemination of information on cocoa, roughly two-thirds of cocoa bean production is used to make chocolate and one-third is used to make other cocoa powder. The world retail market for sugar-type candy, gum and chocolate candy was $119 billion in 2004 according to Euromonitor. Chocolate candy represents the 54 percent of the total, and sugar-type candy and gum account for the remaining 46 percent. Average growth from 2003 was 10 percent, ranging from 8 percent to 12 percent in the individual subcategories. The world market for cocoa ingredients, most of which sold to other food manufacturers, is not easily characterized. Based on cocoa bean production, trade, prices and survey data the world market for cocoa ingredients was estimated to be between $10 billion and $12 billion in 2004, a significant increase from the value in 2003. World confectionery trade was $15.8 billion in 2003 according to Global Trade Atlas.2 Chocolate candy trade was $7.7 billion, sugar-type candy and gum trade was $4.9 billion and cocoa ingredients trade was $3.2 billion in 2003 (Figure 1). Cocoa ingredients represent a substantial portion of world confectionery trade despite the small world market for cocoa ingredients relative to sugar-type candy,

2.1.1 Chart over 5 years, growth trends and projections The value of world confectionery trade is forecast to be $17 billion in 2004, an increase of 8 percent from $15.8 billion in 2003 (Figure 2). Over the same period, the volume of confectionery trade is forecast to increase to 5.8 million tons from 5.5 million tons, growth of more than 6 percent (Figure 3). The value of confectionery trade increased more than the volume, a combination of increased cocoa prices and greater consumer demand for higher value foreign products. This trend is forecast to continue in 2004, but with more moderate value growth after two years of strong expansion. Of the major confectionery categories, sugar-type candy and gum, chocolate candy and cocoa ingredients, cocoa ingredients trade has shown the strongest value growth in 2002 and 2003, at 25 percent and 35 percent respectively. This was partially due to an increase in cocoa prices over the period.

2.1.2 U.S. market share The United States is a net importer of confectionery products. The trade deficit widened from $1.62 billion in 2003 to $1.66 billion in 2004 (Figure 4). However, exports grew slightly faster than imports (4.9 percent versus 3.4 percent) partially because a weaker dollar made U.S. goods cheaper abroad. U.S. exports as a share of global confectionery trade have decreased from 8 percent in 2001 to 5 percent in 2003 (Figure 5). U.S. manufacturers are not forecast to increase world market share in 2004 despite a weaker U.S. dollar. U.S. exports account for between 5 and 9 percent of global trade for each individual confectionery category (sugar-type candy and gum, chocolate candy and cocoa ingredients). The increase in U.S. confectionery imports accounted for 23 percent of global trade value growth between 1999 and 2003, but U.S. exports accounted for only 4 percent of trade growth, indicating that U.S. import demand is playing a significant role in increased global confectionery trade.

2.1.3 Production and trade Global sugar-type candy, gum and chocolate candy production has grown slowly in recent years, and some manufacturing has relocated to developing economies. According to Euromonitor, global production by volume has been increasing by between 1 percent and 2 percent annually to 12.8 million tons in 2004. The retail value of global production was $119 billion in 2004, 10 percent growth from 2003.

The value of the global cocoa ingredients sold to food manufacturers was estimated to be between $10 billion and $12 billion in 2004, according to industry production and trade data. The volume of global cocoa ingredients production in 2004 was estimated to be in excess of 4 million tons. In recent years, value growth has been stronger than volume growth because of increased cocoa prices.

2.2 What countries are the key Suppliers and Traders

According to candy industry data, the United States produces the most chocolate by volume, followed by Germany, the United Kingdom, France, Brazil and Japan. The United States also produces the most sugar-type candy by volume, followed by Germany, Brazil, the United Kingdom and France. Production in fully developed economies has stagnated, but investment

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in emerging economies (China, Russia, Brazil and Mexico) has helped output value and volume grow.

According to the ICCO, most cocoa bean processing occurs in countries where cocoa products will be consumed, not where cocoa beans are grown. The majority of cocoa beans are grown in a handful of West African, Southeast Asian and Latin American countries.

World confectionery exports were valued at $15.8 billion in 2003, 29 percent growth since 1999. The European Union (EU-25) accounted for 68 percent of exports in 2003, followed by the NAFTA countries (Canada, United States and Mexico) with 15 percent. However, confectionery exports from NAFTA countries grew 39 percent from 1999 to 2003 compared with 28 percent growth from the EU-25.

2.3 Structure of the industry

The global sugar-type confectionery, gum and chocolate candy market is highly fragmented. According to Euromonitor, no company has more than 10 percent of the total share. A handful of large companies combined have around 40 percent of the market: Mars Inc., Wm. Wrigley Jr. Co. (Wrigley recently purchased Krafts confectionery brands), Nestle SA, Hershey Foods Corporation and Cadbury Schweppes Plc.

The global cocoa ingredients market has a several large players. According to ICCO, four large companies combined account for over 50 percent of all cocoa grindings in 2001: Archer Daniels Midland, Cargill, Barry Callebaut AG and Nestle SA. Archer Daniels Midland sells cocoa ingredients to food manufacturers, but Cargill, Barry Callebaut (through a recent acquisition of Brachs Confections, Inc.) and Nestle also have chocolate candy brands available to retail customers.

For the largest confectionery companies, over 80 percent of sales value comes from chocolate candy. Reasons include higher retail value for chocolate, more chocolate brands and a larger number of international markets for chocolate confectionery. The sugar-type confectionery market is typically captured by smaller regional company brands.

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According to Securities and Exchange Commission filings, the largest public U.S. confectionery companies, including Tootsie Roll Industries, Hershey Foods Corp. and Wm. Wrigley Jr. Co., operate some foreign manufacturing facilities in Canada or Mexico (among other countries). Manufacturing abroad reduces U.S. exports but is necessary to remain competitive in the global market.

2.4 Competitor analysis

2.4.1 Production, access/cost of raw ingredient Developing countries have challenged EU sugar policies in the World Trade Organization. Sugar prices for U.S. confectionery manufacturers are two to three times above world prices.

Some U.S. confectionery manufacturers have reported delaying capital improvements, such as purchasing European confectionery manufacturing machines, because the U.S. dollar has been weak relative to the Euro in recent years.

Industrial confectionery sugar consumption in the United States declined by 18 percent from 1999 to 2004, according to the Economic Research Service (ERS). During this period, several confectionery companies relocated their manufacturing facilities to countries with lower sugar costs (Canada and Mexico) and lower labor costs (Mexico). Confectionery production in Canada and Mexico has increased significantly over the period according to manufacturer data,3 trade data and anecdotal evidence. Overall U.S. sugar consumption declined from 1999 to 2003, but has grown in the past two years. Cocoa diseases have disrupted global production and prices. Brazil, the worlds fifth largest cocoa producer, went from being a cocoa exporter to a cocoa importer after the witches broom fungus devastated production in 1989. Indonesia, the worlds third largest cocoa producer, is currently struggling with pod borer disease, poor farming techniques, and unhelpful government policy. As cocoa quantity and quality has fallen, production and exports have declined correspondingly.

The confectionery industry recognizes the challenge of sourcing cocoa, a key raw ingredient, primarily from the developing world. Consumer sensitivity about labour and environmental
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issues has the potential to demonize an almost universally affordable, non-essential product that is often associated with indulgence and luxury.

2.4.2 Quality/availability/price positions of competitor

Industry sources report that many U.S. candy factories have relocated outside of the United States in recent years. Some manufacturers blame policies that keep U.S. sugar prices high relative to other countries, but do not keep foreign-made sugar-type candy out of the United States. Confectionery manufacturers in countries with cheaper domestic sugar, such as Brazil, are at a competitive advantage to their U.S. counterparts.

As a result of the EU Common Agricultural Policy, the price of sugar in the European Union is kept high compared with the world price. European manufacturers who must pay more for these ingredients than foreign competitors are therefore at a disadvantage in the global market place. However, the European Union uses a system of export refunds on sugar containing products designed to bridge the gap between internal and external prices.

Product development trends include premium chocolate, sugar-free offerings and functional items. Premium chocolate includes products made from fine or flavor cocoa beans instead of bulk or ordinary beans. ICCO makes the following generalization: fine or flavor cocoa beans are produced from Criollo or Trinitario cocoa-tree varieties, while bulk cocoa beans come from Forastero trees. Fine or flavor cocoa now represents about 4 percent of total production. In Europe and the United States, the combination of high domestic sugar prices and consumer concern about sugar consumption has encouraged some manufacturers to seek alternative sweetener ingredients, including saccharine, sucralose and aspartame. The sugar alcohol, xylitol, has become a popular ingredient in functional products such as sugar-free gum and candy, because consumers believe using xylitol reduces tooth decay rates.

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3. The Confectionary Market in India

3.1 General background
The chocolate and confectionery market in India has undergone major changes and growth since the opening up of the economy and liberalization of the investment regime in 1991. India became an attractive place for foreign investment and several large multinational companies entered the market for confectionery products. This resulted in its steady growth and gradual transformation from a commodity market to a branded products market dominated by multinational companies. Compared to the conventional fast moving consumer goods (FMCG), the confectionery segment in India offers significantly higher potential for growth. For example, over the past five years toilet soaps and detergents reached over 90% of the Indian households, while according to ORG-MARG estimates, chocolate penetration in 2000 was 5% and of sugar boiled confectionery, 15%. Even considering the urban market alone, the category reaches just 22% of the urban consumers. For comparison, cookies, considered to have modest penetration have reached 56% of the Indian households. Clearly the confectionery sector, which has been showing healthy growth over the last years, still has considerable potential to grow before it reaches saturation point, as have traditional FMCG products such as soaps and detergents. Indeed, the confectionery market in India is witnessing tremendous activity. Regular product launches, high decibel media activity, consumer promotions and trade promotions make this one of the most hyperactive categories in the Indian market.

The Indian confectionery market is segmented into sugar-boiled confectionery, chocolates, mints and chewing gums. Sugar-boiled confectionery, consisting of hard-boiled candy, toffees and other sugar-based candies, is the largest of the segments and, according to some key industry players we spoke to, it is valued at around Rs. 20,000 million.

Some of the largest multinational companies active in the confectionery sector, like Cadbury, Nestle and Perfetti, have already invested in India and others keep entering the market (e.g. Lotte in 2004). Also, global mergers and acquisitions have resulted in consolidation of some of the major players in this segment in India (e.g. Perfetti with Van Melle, Joyco with Wrigley, and Lotte with Parrys). Some large Indian companies have also entered the
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confectionery market by leveraging their overall brand equity and distribution infrastructure for their existing product lines. In result of these active developments and the positive socioeconomic changes in India, both per capita consumption and availability of higher quality products are expected to grow in the coming future. At the same time, Indias confectionery market is very price-sensitive, which makes it difficult for marketers to raise prices. This price sensitivity plays to the advantage of a large unorganized production sector in India. These are numerous small scale/backyard operators who are not registered and do not pay excise duties to the government. At the same time they maintain very low operational costs. These factors allow them to sell at very low prices and to achieve significantly higher margins than the organized sector.

3.2 The confectionery sector

3.2.1 Market size Despite its vast population, Indias confectionery market is still very small. With a population about five times larger than the US, the volume size of its confectionery market is more than 20 times smaller. It is valued at close to US $450 million, and is estimated to be 138,000MT,

As seen from Figures 10 and 11 below, retail sales have shown healthy growth over the last several years. Indeed, over the 1998-2003 period overall sales have grown more than 55% in value terms and 46% in volume terms, at an average annual rate of 9.5% and 8%, respectively. There is a clear trend of faster sales growth in value terms, indicating that consumers are increasingly ready to pay a premium for higher value products. The chocolate
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segment is the fastest growing in value terms (9.8% average annual growth rate) closely followed by the gum segment (9.5%). In volume terms, gums grow at the fastest rate (8.5%), followed by chocolate and sugar confectionery (7.8% each). At the same time, to put these figures in some perspective, while retail sales for 2003 in India are estimated to have been US$562 million (Rs. 26,220 million), close to US$26 billion worth of confectionery products were sold in the US. In volume terms these figures were 127,000 MT in India and 3.3 million MT in the US.

While growth rates in general look rather healthy, and all agree that there is still large potential for further growth of the confectionery sector in India, many individual players have experienced slower growth in their sales over the last few years. This trend is partly attributed to the economic slowdown that India experienced in 2000-2002 and resulting decline in consumer spending. Confectionery products are impulse purchases which would be among the first to be cut out. Companies are fighting this trend by broadening their consumer base from primarily children and teenagers, to adults as well.

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3.2.2 Some specific market characteristics Some specific characteristics of the Indian confectionery market, compared to the developed western markets are: India is primarily a mono-pack market while the market worldwide is a multi-pack market. While the trade and distribution in western countries is mostly organized, in India, retail outlets like paan shops and kirana outlets account for the bulk of the sales and organized trade still has only an insignificant share in overall confectionery sales. Functional products and sugar free confectionery dominate the worldwide market while this trend is yet to pick up in India. Sugar confectionery will remain the largest confectionery type. As younger children are traditionally the key consumer group for confectionery, pricing strategies play a significant role in shaping purchasing decisions. 50 paise is the most popular price-point and around 85% of confectionery sales occur at this price point - but there are some products in the rural markets that are available at 25 paise. The Re 1 price-point is not very popular. Gum confectionery will be the fastest growing category, albeit from a smaller retail base. Instead of chewing on paan (betel nut leaf) to freshen ones breath or using spices such as fennel to aid digestion, the local population is increasingly turning to branded confectionery products such as chewing gum and mints. Consuming products such as mint and medicated confectionery conveys a sophisticated image, which appeals to young people. Manufacturers are increasingly looking to create a shift from manufacturing lowmargin products like toffees and boiled sweets to higher-margin products such as gum and chocolates confectionery. There is strong growth potential for chocolate; sales of chocolate confectionery are expected to continue to grow by more than 8% per year in value terms. This is due to the low penetration of chocolate confectionery in rural areas as well as the general low consumption of such products among adults.
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3.2.3 Manufacturers and key players The organized confectionery segment in India segment is dominated by the multinational companies; however, domestic players are increasingly finding a prominent position in the market. The key players in the confectionery sector in India today are: Cadbury India Ltd is the largest manufacturer of chocolate, confectionery and malted food products. Nestle India Ltd is a manufacturer and marketer of coffee, tea, malted beverages, instant baby cereals & foods, milk products, chocolates and confectionery, instant foods and culinary products. Lotte India Corporation Ltd is primarily a manufacturer and marketer of sugar boiled confectionery, cocoa and milk based toffees, candies and mints. Nutrine Confectionery Co Pvt Ltd is a manufacture and marketer of sugar boiled confectionery, cocoa & milk based toffees, candies, clairs and fruit bars. Candico India Ltd is a manufacturer and marketer of sugar boiled confectionery, candies, gums, mints and toffees. They are also the largest contract manufacturer for various Indian and overseas confectionery companies. Perfetti Van Melle India Ltd is a manufacturer and marketer of sugar based confectionery and is a leader in the candy and gum segments of the confectionery market. Parle Products Pvt Ltd is a manufacturer and marketer of cookies, sugar boiled confectionery, and cocoa and milk based toffees. Wrigley India Pvt Ltd is a manufacturer and marketer of chewing gum (Wrigley brands) and sugar based confectionery, bubble gum, chewing gum and candy (Joyco brands). Gujarat Cooperative Milk Marketing Federation is India's largest food products marketing organization and manufacturer of milk and milk products, ice creams, chocolate and confectionery, and ready to eat products.

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ITC Foods, a division of ITC Ltd made a foray in the confectionery market in year 2002.

Hindustan Lever Ltd, Indias leading FMGC company, has a presence in the confectionery market since 2001.

In addition, India also has a large unorganized manufacturing sector, of small producers offering very low priced products. There are no statistics about the size of the unorganized sector, but according to some industry sources, the unorganized sector can account for up to 50% of the market.

3.2.4 Market shares and brands Cadbury India, Ltd. has by far the largest market share in the confectionery sector. Although other players are catching up, its leading position will remain unthreatened for the coming years. The following table specifies the sales market shares of the leading companies in India for 2001 and 2002.

From a bulk market for confectionery products, India is quickly transforming into a market for branded products. Todays consumers, particularly from the middle and upper classes, are brand aware and to a great extent their perceptions about the quality and value of any given

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product is based on the image of the brand rather than on the country of origin or other factors. In result, all leading companies in the sector are focused on developing and promoting their main brands through creative marketing and advertising strategies. Cadbury Indias brands have by far a leading position in terms of sales; it has four brands among the top 10 selling brands. Cadburys Dairy Milk brand is the most popular in India, with sales share (in value terms) of over 12%, far ahead of the second best seller, Perfettis Alpenliebe. The following table shows the leading chocolate and confectionery brands in India.

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3.3 Market segments

3.3.1 Chocolate confectionery Although chocolate confectionery represents less than 20% of the total confectionery market in India in volume terms, its share in value terms is about 40%. It is also the fastest growing confectionery segment in value terms with average annual growth close to 10% (see Figures 10 and 11). However, it should be noted that despite the healthy growth potential, this is still a very small market with sales concentrated primarily in the better-off urban areas.

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As seen from Figure 13 below, chocolate tablets dominate the market, accounting for about half of all chocolate sales of about Rs. 10 billion (27 thousand MT) in India. Countlines is the second largest segment, followed by boxed assortments. Tablets also have shown strongest average annual growth rate (Figure 14). This however, is matched by the growth rate for the various boxed assortments which are becoming increasingly popular to be given as gifts.

As seen in Figure 15, Cadbury and Nestle completely dominate the chocolate market segment. Cadbury is a very strong number one, but in recent years Nestle has toughened the competition by launching new products and targeting the mass market with lower priced products. In result, Nestle is gradually earning some additional market share (from 20% in 2001 to over 21% in 2002). Despite the gains, Cadburys leading position seems to be unthreatened for the foreseeable future. The Gujarat Milk Cooperative Marketing Federation, Ltd. (GCMMF) is a distant number three; it has found it difficult to leverage its leading position in the dairy sector into the confectionery market. However, it has also started a major effort to broaden its reach by launching new products and targeting the children and teens consumer segment. Finally, the respondents to our trade survey reported that some imported
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brands have started gaining popularity in India. In the upscale niche market segment these are mostly Swiss and Belgium chocolates, while in the mass market there is a broader spectrum of brands manufactured in Malaysia, Thailand, Argentina, and other countries.

3.3.2 Sugar confectionery This is the largest confectionery sector in India both in value and volume terms. Accounting for about half of the total confectionery market, the sugar confectionery segment is also showing healthy growth, primarily due to the low-price strategies and discounts offered by the main players. As seen from Figure 16, the toffees/caramels/nougats segment is by far the largest, followed by sugar boiled sweets and mints. In terms of growth however, mints sales have been growing the fastest over the last 5 years (Figure 17). Lollipops are a new product in the Indian market which first registered noticeable presence in the market in 2002, but for the 2002-03 period, they have also registered growth of over 10%, the same as mints. Forecasts show that lollipops will continue to strengthen their market position. The sugar confectionery segment is highly fragmented with over 20 companies in the organized sector and a proliferation of unorganized players which according to industry sources account for nearly 5,000 brands and numerous manufacturers. The unorganized sector has been traditionally operating through huge trade margins and relying on trade push. Over 70% of the products sold in this segment are in the 50 paise category.

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3.3.3 Chewing gum This a smaller but fast growing segment of the confectionery market in India. As seen from Figure 18 below, the market is driven primarily by sales of bubble gum to children which accounts for over 75% of the total value of gum retail sales in India. Chewing gums like mints, for example, are gaining momentum among young adults as breath fresheners. Although chewing gums are also showing faster growth rate than bubble gum (see Figure 19), it is nowhere near catching up with it in terms of sales and market share. While bubble and chewing gum are growing quite fast, functional gums that address specific health issues (e.g. fighting tooth decay and plague, gum disease) are virtually non-existent. The only functional gum that is on the market is Perfettis Happydent White, launched in 2001. This is
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a mint flavored gum that fights tooth decay and has a whitening effect due to the baking soda it contains. However, the product has sold way under expectation, gaining some recognition only in several key metropolitan cities, like New Delhi, Mumbai, and Chennai.

3.3.4 Sugar-free confectionery Until July 2003 the use of artificial sweeteners was not allowed in India. As a result there was no sugar-free confectionery available in the market. This ruling was to a great extent the result of the pressure the strong sugar lobby was putting on the government. India has a very important sugar industry providing employment for a large number of people. It is estimated that the sugarcane farmers and their families number over 35 million and represent about 7% of the rural population. Up to that time, the only artificial sweeteners that were allowed to be manufactured in the country were table top sweeteners for use by diabetics. Since the Indian
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food law did not allow the use of artificial sweeteners in confectionery products, no such products were imported as well. While some sugar-free beverage and confectionery products could be seen on market, these had been imported illegally. However, in July 2003, the Ministry of Health with consultation with the Central Committee of Food Standards amended the Prevention of Food Adulteration (PFA) rules of 1995 and allowed production of sugar-free confectionery. According to this notification, confectionery products can contain up to 1% food grade titanium dioxide and limited quantities of aspartame. The ingredient was allowed in categories such as chewing gum and bubble gum, cookies, bread and cakes. The notification adds that all food products said to contain artificial sweeteners will need to declare contains artificial sweeteners on the package.

3.4 Pricing
As it was already emphasized, the Indian market is generally price sensitive. Also, many experts see that the mass market will grow at faster rates than the niche segments. In result most confectionery companies are trying to fit their products in the lower price ranges. The most popular price range for confectionery products is the Rs. 0.25 0.85. Most confectionery brands of Nutrine, Lotte, Wrigleys, Perfetti, Candico, Parle, etc. are from the Rs. 0.25 to Rs. 1 price categories. Some chewing gum and bubble gums are in Re. 1/-, Rs. 2/- and Rs. 5/- categories. Most major companies including Cadburys and Nestle are strongly pushing sales of their Rs. 5/-, Rs. 7/-, and Rs. 12/- categories. There is a big difference in the prices of domestic and imported products. The general rule is that domestic products are the cheapest. Then, there are different ranges of prices for imported products, depending on the brand, country of origin, and product itself. Asian and South American products are usually moderately priced, while European and US products are the most expensive. For example, from the top end products, 100gm Lindt chocolate sells for around Rs. 130. An important factor that affects the price of the products is the Central Excise Duty payable by the organized/registered manufacturers. For sugar confectionery (without cocoa), it is 8% (recently reduced from 16%); for chocolate confectionery, it is 16%. All involved in the distribution and manufacturing of chocolate products see this as a major constraint to the
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growth of the segment and believe that the excise duty for chocolates should be brought down similar to the duty for sugar confectionery. However, the government is not really keen on reducing the duty, because it is not seen to affect any major true Indian player or manufacturer. The dominating view is that this duty is earning revenues from two major chocolate manufacturers, Cadbury and Nestle, both of which are foreign companies. There is also a sales tax, which varies from state to state. For example, Maharashtra has the highest sales tax, 15.3%, while in some of the southern states it varies from 5-10%. From April 01, 2005 the Government of India will implement value-added tax (VAT). The VAT will replace the sales tax regime in all states with a two-tier tax regime of 4% and 12.5%.

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4. Conclusions & Recommendations

4.1 General prospects
The Indian market for confectionery products has undergone significant changes over recent years. While penetration and consumption levels are still very low, overall sales, and particularly sales of higher value premium products have increased. The availability of imported products has also been rapidly rising since India liberalized its imports regime in 2001. Nevertheless, they are still very small leaving ample opportunities for further growth. The distribution channels have also undergone substantial changes. Supermarkets have emerged and started to gain power over other retail formats. With these changes in mind, we expect that: The share of imported confectionery will continue to increase over the next several years, although overall sales will remain modest. Indians taste will continue to become more westernized and more quality conscious. This trend will be more obvious in the urban areas among middle and upper class consumers, offering higherend foreign brands growth opportunities. While most domestic companies also focus their new product development efforts on the mass market, a few have products targeting premium products. Nevertheless, Indians associate imported products with higher quality, and therefore respond positively to confectionery imports. The United States along with Western Europe are perceived as offering highest quality, although there is very low awareness of US confectionery products and brands. Indian confectioners are increasing their efforts in product development and promotional activities, and exporters will face stiffer competition from the domestic sector. On the other hand, the very low penetration and consumption levels provide ample opportunities for growth and make competition less of a constraint. However, for US exporters competition will be an important factor in the upscale niche segments, where European brands, particularly for chocolate are considered the best.

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 The popularity of chocolate products, particularly boxed assortments for gifts, will continue to increase. The sugar confectionery will remain the largest confectionery segment. We expect to see growth of new and novelty products, such as mint and medicated confectionery (with added vitamins and/or other minerals), as well as the new to the country sugarfree confectionery categories.

While the traditional targets for confectionery products have been children and young people, increasing number of marketers have seen growth opportunities in targeting the adult consumer segment. This will lead to new products and marketing strategies aimed at them. There will continue to be opportunities for new products that appeal to the young consumer. The ever-present stimulus of novelty and fashion, encouraged by continuing exposure to western culture will keep the doors open for new products and new suppliers.

Marketing and promotion expenditures for confectionery products will increase and distributors will require promotional support from manufacturers.

4.2 Recommendations
Potential exporters should carefully select trading partners from among the Indian importers and distributors, as they will be critical to ensuring presence of their products on retail shelves. Importing is a relatively new business in India, and many importers may lack the knowledge and experience to ensure successful distribution of the products they deal with. Therefore, it is of critical importance to select the right partner. Importers and distributors may have limited financial and human resources. Thus U.S. exporters should be willing to offer as much support as possible, particularly in the initial phase of market entry.
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 U.S. exporters may directly contact potential importers and distributors to select their partner(s). They may use the list of industry contacts provided in Section 6 or obtain contact through the US Embassy in New Delhi. The typical way of introduction is to send them company brochures, product catalogues, product samples, and price lists. A proper, formal introduction is important for a new entrant to make effective and productive contacts at potential partner firms. Mumbai and/or New Delhi are the most appropriate entry markets for US exporters. These cosmopolitan cities, with a larger number of affluent consumers exposed to western influences, as well as better developed infrastructure, are most appropriate for introduction of new US products that are generally higher priced than domestic and some imported products. India remains a very price sensitive market and appropriate pricing is key to the success of new products. US exporters should carefully discuss their product pricing and positioning with their chosen partners in India.

4.3 Success stories

Distribution is the key to success for high value food items like chocolates. There are many examples of both small companies with minimal financial resources and large companies with substantial financial resources who lack adequate experience in the import trade or knowledge and access to distribution channels for confectionery products and who have ventured into the import of chocolates and confectionery but failed. In fact, some of the most common mistakes have revolved around seasoned and diversified importers entering the confectionery import market with a keen understanding of importing but a lack of knowledge about the confectionery market and distribution in India. There have been several examples where importers with experience in industries from metals to healthcare products partnered with leading foreign confectionery manufacturers to import and distribute their products throughout India. Yet, these importers did not have an understanding of the complex confectionery distribution channels, the price sensitivity of the confectionery market, nor their target market and, inevitably, imports were discontinued and the goal of the partnerships was never attained.

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Although these companies did not have success in Indias confectionery import market, for all of the unsuccessful attempts there are an equal number of success stories. Some of these are as follows: Effem India Pvt Ltd - a 100% subsidiary of Mars Inc., USA is perhaps the only company in India that is professionally importing and distributing chocolate in India. The company commenced imports in August 2004. They import products such as Mars, Twix, Snickers and Bounty from the Mars subsidiaries Masterfoods, Holland and Masterfoods, France. The products are distributed by Snowmans Frozen Foods Pvt Ltd, a distribution company, which uses a cold/refrigerated chain to distribute the product all over India and the product is available in all metropolitan areas, cities and main supermarkets such as Foodworld, Food Bazaar, Subka Bazaar, Nilgiris, C3 as well as in convenience/kinara stores, chemist shops, and grocery stores across India. Sunstar Confection & Trading (Pvt) Ltd / Fantasie Chocolates - The other international major brand in India is Lindt. These chocolates are imported by a Mumbai based company Sunstar Confection & Trading (Pvt) Ltd who also retails the Lindts range through their own air conditioned boutique stores called Fanatise Chocolates in Mumbai, Pune and Bangalore. Fantasie chocolates also sell their home brand Fantasie through these stores. Fantasie chocolate brand is 50 years old and is well known in Western India. Vrinka Overseas Pvt Ltd/Sweet World is perhaps Indias only multi-store, multilocation candy store. Sweet World commenced operations in 2002 and introduced the Pick N Mix concept in India. Sweet World sells over 200 varieties of unbranded imported confectionery including jellybeans, gummies, marshmallows, gumballs, licorice, etc. There will be 20 Sweet World stores in India by March 2005, all of them in the prestigious malls in major metropolitan areas across India.

Brook Trading Co. Pvt Ltd./Patchi Chocolates another imported chocolate brand which has a presence in Mumbai, India is Patchi. Mumbai based Brook Trading Co. Pvt Ltd., imports and retails a range of Patchis chocolates imported from Lebanon. Their flagship store, Patchi, opened in Crossroads, an upmarket shopping mall in Mumbai in 2003. The company is planning to open two stores in Delhi and one each in Kolkata, Bangalore, Hyderabad and Pune in 2005.
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Other US chocolate and confectionery brands that have established some small presence in India over the last three years are: Hersheys imported and distributed in India by Kaivan Foods; Skittles anad M&Ms imported and distributed in India by Optimum Marketing Metrics Pvt Ltd; Tootsie imported and distributed in India by Optimum Marketing Metrics Pvt Ltd; Just Born - imported and distributed in India by Optimum Marketing Metrics Pvt Ltd; Hasbro imported and distributed in India by Microtrack Business Systems Pvt Ltd; Brachs - imported and distributed in India by Balaji Victuals Pvt Ltd; Jelly Belly - imported and distributed in India by HMA Udyog Ltd; and Hillside Candy - imported and distributed in India by HMA Udyog Ltd.

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5. References
www.google.com www.wikipedia.org www.researchandmarkets.com world market profile for confectionary products A report on the market for confectionary products in India Packaging of Sugar confectionary and chocolates Milk and Dairy Sector : A case study confectionary\channelsPortalWebApp.portal.htm Food and Beverages sector.pdf The chocolate confectionery market today: consumer trends and outlook

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